Xenia Hotels & Resorts, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018; filed August 2, 2018. Xenia is a U.S. hotel REIT focused on premium full-service and lifestyle properties. At quarter-end it owned 38 hotels with 10,852 rooms across 17 states and Washington, D.C.
Financial and operating performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $277.1 million | $244.4 million | $541.6 million | $462.9 million |
| Operating income | $48.2 million | $38.9 million | $81.0 million | $59.3 million |
| Net income | $29.5 million | $71.0 million | $86.6 million | $79.2 million |
| Net income attributable to common stockholders | $28.8 million | $69.4 million | $84.5 million | $77.5 million |
| Diluted EPS | $0.26 | $0.65 | $0.78 | $0.72 |
| Operating cash flow | Not separately presented for the quarter | $130.4 million | $110.1 million |
- Q2 revenue increased 13.4% and six-month revenue increased 17.0%. Growth reflected acquisitions and portfolio changes as well as hotel trading.
- For the total portfolio, Q2 occupancy was 80.1% versus 78.6%, ADR was $222.28 versus $208.86, and RevPAR was $178.04 versus $164.10. Six-month RevPAR was $168.25 versus $155.72. These comparisons include hotels acquired or sold during the respective periods.
- Management reported Q2 Adjusted EBITDAre attributable to common stock and unit holders of $89.8 million, up 12.9%, and Adjusted FFO of $71.9 million, up 13.6%. For six months, the respective figures were $163.6 million (up 18.0%) and $128.1 million (up 15.5%). These are non-GAAP measures, not substitutes for GAAP earnings or cash flow.
- At June 30, cash and cash equivalents were $184.8 million; restricted cash was $63.0 million. Gross debt was approximately $1.125 billion, compared with $1.330 billion at year-end; the balance-sheet carrying amount, net of discounts and financing costs, was $1.118 billion. Weighted-average debt interest rate was 3.78%, versus 3.71% at year-end. No revolving-credit-facility balance was outstanding.
- Six-month investing cash flow was $136.1 million provided, including $196.9 million of net proceeds from the Aston Waikiki Beach Hotel sale, offset in part by $55.9 million of capital expenditures. Financing cash flow used $149.1 million, including $228.3 million of mortgage repayments and $59.4 million of dividends, offset partly by $120.1 million net ATM equity proceeds and $65.0 million of new mortgage debt.
Changes, outlook, and notable items
- Common-stockholder net income fell 58.5% in Q2 year over year, principally because Q2 2017 included $49.2 million of gains on hotel sales. Six-month common-stockholder net income rose 8.9%, with the comparison also affected by the timing of property dispositions.
- Q2 interest expense rose $1.9 million to $13.1 million; six-month interest expense rose $5.5 million to $26.8 million, reflecting debt levels, timing of borrowings and repayments, and higher average rates.
- The six-month 2018 results included a $42.3 million gain on sale, primarily from the March sale of Aston Waikiki Beach Hotel, and a $2.6 million business-interruption insurance gain related to Hurricane Irma losses at Hyatt Centric Key West. The insurance amount included recovery for lost income in 2017 and Q1 2018.
- Renovations at 11 hotels in Q1 disrupted comparable-hotel rooms revenue; management said those projects were completed or substantially completed by quarter-end. Q2 renovations began at several properties. Management attributed a $3.1 million six-month decline in operating income at the 34 comparable hotels partly to the renovation disruption.
- Xenia repaid $228.3 million of mortgage debt and reduced variable-rate debt exposure to 13% of total debt from 28% at year-end. It reported compliance with debt covenants. The $500 million revolving facility was undrawn at quarter-end.
- The company declared a quarterly dividend of $0.275 per share/unit. It had no formal financial guidance in the supplied filing text. Management described liquidity sources as operating cash flow, cash, the revolver, refinancing, asset sales, and equity issuance.
- Key risks cited include lodging demand and rate volatility, seasonality, economic conditions, competition, reliance on third-party hotel managers and brands, renovation and capital needs, natural disasters and uninsured losses, and interest-rate and refinancing exposure. Management said ordinary-course legal matters were not expected to have a material adverse effect; no material risk-factor changes were reported.
Important facts for investors to verify
- How much of reported revenue and RevPAR growth reflects acquired/disposed properties versus underlying comparable-hotel performance.
- The sustainability of operating cash flow and dividends after capital expenditures, debt service, and required property reserves.
- Debt maturities, refinancing availability, interest-rate exposure, and the effect of the company’s swaps; management estimated a 1% rate move on variable-rate debt would affect annual earnings and cash flow by about $1.4 million.
- Progress and costs of hotel renovations, and the timing and collection of the $5.0 million disposition escrow expected in September 2018.
- The continuing impact of insurance recoveries and other sale-related or non-recurring items; non-GAAP results should be considered alongside GAAP results and cash flows.